Consumers May Notice Beef Production Decreases in 2013

Beef production in the United States is expected to decrease 4.8% in 2013, the second largest year-over-year decrease in 35 years, trailing only the 6.4% drop in 2004.

The reason is a combination of mostly steady carcass weights and a projected 5% or more decrease in cattle slaughter, said Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist in an OSU release.

"Many analysts expect the 2013 numbers to be followed by a 2014 decrease of 4.5% or more," he said. "These two years would represent the largest percentage decrease since the late 1970s."

Beef production in 2012 decreased by approximately 1.1% compared to 2011 with a 3.3% decrease in slaughter, which was partially offset by a 2.3% increase in carcass weights.

However, the effect on consumption of beef does not always match the change in production. Domestic per capita consumption will depend on production levels but must be adjusted for beef imports and exports.

"In 2013, per capita beef consumption is expected to drop 3.5%, less than the production decrease because beef imports will increase and beef exports will decrease," Peel said. "The decrease in per capita beef consumption in 2013 should be similar to the year-over-year decrease in 2011 compared to 2010."

In 2011, domestic per capita beef consumption decreased 3.8%, in large part because of a sharp increase in beef exports despite a minimal decrease in beef production.

Though 2004 had a sharper production decrease, per capita beef consumption that year increased nearly 2% because of a sharp drop in beef exports, largely attributed to the first case of Bovine spongiform encephalopathy, also referred to as BSE, in the United States.

"Beef consumption may drop more sharply in 2014 with a 5% decrease in per capita consumption compared to the lower 2013 level," Peel said. "Furthermore, these decreases in beef production and consumption almost certainly imply higher wholesale and retail beef prices, although other factors will impact the price response to lower supplies."

Choice boxed beef has been trapped in a narrow range between $193 and $198 per hundredweight for the past three months. Retail beef prices were flat to slightly lower through much of 2012 but did jump sharply in November.

"In 2011, a similar decrease in beef consumption resulted in a 15% increase in boxed beef prices and a nearly 10% increase in retail prices," Peel said. "Total meat consumption decreased about 2% in 2011 and a similar 2.1% decrease is expected in 2013 with both pork and broiler consumption expected to drop approximately 1.5% each."

The pressure for higher boxed beef prices will increase significantly with an expected 4.5% decrease in beef production in the first quarter of 2013.

Choice boxed beef should move above $200 per hundredweight in the next few weeks. Beyond that, Peel believes it will be a question of how much and how fast retailers can pass along the higher wholesale prices to consumers.

"It is not really a question of whether retail prices will go up but rather a question of how much and how fast," he said. "Beef demand remains the biggest unknown in the beef industry. Time will tell just how severe the squeeze will be on industry margins in 2013."